About a week ago, I was lucky to moderate the digital equivalent of a “fireside chat” with Richard Epstein about the patent system.  The topic was “Patent Rights: A Spark or Hindrance for the Economy?,” and Richard offered his usual brilliant analysis of the systemic viritues of securing patents as property rights.  you can listen to the podcast here.

The podcast is also available via iTunes, for readers of this blog who are members of the “cult of Apple.”

Here’s the description of the podcast:

Innovation and entrepreneurship are integral to America’s economic strength, and the U.S. patent system has been critical to nurturing the innovation economy.  With its foundation in Article One, Section 8 of the Constitution, the U.S. patent system has been the strongest in the world.  In recent years, some critics, including Judge Richard Posner, have argued that the patent system has led to excessive patenting, too much litigation, and unwarranted costs for consumers.  Patent defenders have responded that with every spike in innovation comes a corresponding increase in the number of patent suits, and efforts to weaken patent rights will inevitably lead to less innovation.  With the passage of the America Invents Act — the broadest overhaul of the patent system in 50 years America — many people believed that the dispute over patent rights would recede.  However, with a string of high profile patent infringement suits in the smartphone industry – and a new effort to roll back patent rights at the International Trade Commission certain patents held by so-called “non-practicing entities” (NPEs) – the debate over intellectual property has grown more intense.  Would reduced patent rights diminish U.S. competitiveness and depress innovation?  In a diversified economy, should NPEs have fewer patent rights than those that manufacture their inventions?   Will innovation continue apace even if patent protections are scaled back?

 

Filed under: intellectual property, patent

My colleague, Eric Claeys, has posted to SSRN an interesting and important review of Robert Merges’s new book, Justifying Intellectual Property (Harvard University Press, 2012).  Here’s the abstract…

Read the full piece here. 

We often hear today that there’s an unprecedented “patent litigation explosion” that’s killing innovation. Last week, the New York Times plied this claim without abandon in its hit piece on high-tech patents.  It’s become so commonplace that this phrase garners over 1.3 million hits on Google. It’s especially common fare in discussions about the “smart phone war.”  It was raised repeatedly by my fellow panelists, for instance, at a congressional briefing a few days ago (you can listen to the audio of the event here).

Of course, a blog posting is not a law review article and so I can’t get into all of the weeds here, but a blog is ideal for a few quick reactions to this tread-worn trope in the public policy debates about patents.

First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%.  As Yoda would say: patent litigation explosion this is not, hmm, no.  In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% — more than twice the patent litigation rate today.

This was during a time, as reported by patent law professor Michael Risch, when patents were handwritten, and even worse, patents were extremely vague, incoherent and sometimes outright unintelligible.  And, as Professor Risch and others have so ably reported, patent law was very much unsettled at this time as well given the many new ways that the American patent system departed from English patent law. 

And it wasn’t just that the law was new and that patents were vague, as early scientific and technological discoveries were just as difficult to comprehend as the new scientific and technological discoveries are today. Long before Judge Richard Posner was complaining of the lack of technical competence at the PTO or Judge Learned Hand was complaining about his own ignorance of biochemistry in assessing the validity of early pharma patents, Supreme Court Justice Joseph Story was explaining in 1841 that

Patents and copyrights approach nearer than any other class of cases belonging to forensic discussions, to what may be called the metaphysics of law, where the distinctions are, or at least may be very subtle and refined, and sometimes, almost evanescent.

Frankly, with all of the rampant uncertainty in early patent law and in early developments in science and technology — early nineteenth-century scientists, for instance, were still vigorously debating whether the atomic theory of matter was valid — it’s surprising that the patent litigations rates weren’t astronomically higher than just 1.65%, or with many similar problems today that our patent litigations rates are only 1.5%.

The historical patent litigation rates are significant because they also include the same “patent wars” that we are experiencing with the “smart phone war.” The very first patent war began in 1851, and was called at the time in the popular press the “Sewing Machine War.”  The Sewing Machine War had all of the allegedly new problems about which there is much breathless commentary on the “smart phone war” today: lawsuits in multiple venues, expensive litigation, numerous overlapping patents, non-practicing (patent-licensing) entities obtaining injunctions against manufacturers, “defensive patenting,” inventors’ sales of patents to firms, etc., etc. There was even widespread popular outcry over the Sewing Machine War, as it was fought as much in the newspapers as it was in the courts. As the classic saying goes: What’s old is new again.

Importantly, the Sewing Machine War was ultimately resolved by patent-owners innovatively creating the very first patent pool in American history, called the Sewing Machine Combination, which functioned successfully until its last patent expired in the 1870s. The Sewing Machine Combination unleashed a tremendous amount of commercial, technological and even social innovation — including new innovative manufacturing techniques, innovative commercial practices, and even helping change social prejudices about women’s ability to use machines.  As a result, the sewing machine was fundamental to the success of the Industrial Revolution in the U.S., as I have detailed extensively in my historical research.

But even after the Sewing Machine War was brought to an end in 1856 by the Sewing Machine Combination, so-called “patent wars” continued to occur with every pioneering leap forward in technological innovation — the incandescent light bulb, telephone, electrical systems, automobile, airplane, and radio were all subjects of patent wars. Today’s patent lawyers remember very well the “diaper wars” and the “stent wars” of the 1980s, resulting in hundreds of millions of dollars in patent damages awards. If cutting-edge innovation in disposable diapers (a multi-billion-dollar industry, as any parent knows) is the subject of intense patenting and extensive litigation, then frankly we should be unsurprised that this occurs again with 21st-century cutting-edge innovation in smart phones, tablet computers and other digital devices.

Unfortunately, the complaints today about today’s patent litigation crisis arise more from unchecked intuitions about what feels like a bad situation, from unrealistic assumptions about how much certainty we can achieve in the patent system, and from emotionally-compelling anecdotes about innovators running into trouble with patents — like the ones that dominated the New York Times hit piece on high-tech patents a week ago.

As I said in a previous blog posting, it’s time to bring objectivity and a historical-based perspective to public policy discussions about patent litigation, the smart phone wars, and the role of property rights in innovation.

Filed under: intellectual property, litigation, patent, technology, war

I’m moderating the digital equivalent of a “fireside chat” with Richard Epstein at 3pm this afternoon.  The great thing about teleforums is that, unlike podcasts, listeners can ask questions of the speaker.  So, call in and let’s have fun!   Here’s the information…

Read the full piece here. 

UPDATE: You can listen to an MP3 of the panel briefing at

http://www.netcaucus.org/audio/2012/20121016mobilepatents.mp3

Today, I’m participating in a Hill briefing on the smart phone wars hosted by the Advisor Committee for the Congressional Internet Caucus.  Here’s the information:

Date: Tuesday, October 16, 2012
Time: 12:00 pm – 1:30 pm. Program begins promptly at 12:00 pm, check-in starts at 11:30 am. (Box lunch will be served)
Location: Rayburn House Office Building – Room 2226
RSVP: [email protected] or via phone to 202-638-4370. Note: Registration is complimentary.

Panelists

• Marvin Ammori – Principal, Ammori Group and Steering Committee, Engine Advocacy [Bio]
• Jorge Contreras – Associate Professor of Law – Washington College of Law, American University [Bio]
• Eric Hinkes – Legal Policy Fellow, Congressional Internet Caucus Advisory Committee [Bio] (Moderator)
• Adam Mossoff – Professor of Law – George Mason University School of Law [Bio]
• Rob Pegoraro – USA Today/Discovery News [Bio]

Additional Panelists Will Be Announced

You have seen the headlines: Patent litigation continues to roil the exploding smartphone and tablet marketplace with consumers literally caught in the crossfire. Recent high profile smartphone court cases have consumers and policymakers deeply troubled that courts will strangle the incredible pace of mobile innovation and competition. Recent litigation between leading smartphone manufacturers has also caught the attention of Congressional members. The number of smartphone patent lawsuits in multiple countries and jurisdictions around the globe is dizzying and could threaten to keep the best new mobile phones off the market. How will the public be affected by these lawsuits as new mobile devices continue to rollout? Will a competitor force your favorite mobile device off the market?

A diverse set of panelists will tackle important questions including: 1) Can mobile device companies simply innovate around these intellectual property disputes?; 2) Are these constant lawsuits just the natural byproduct of rapid innovation?; 3) Must Congress step in with legislation? The panel will also debate the impact of the recently passed America Invents Act on the smartphone litigation inferno and share their thoughts on what patent issues lie on the horizon in the competitive mobile device space.

Filed under: truth on the market

The recent New York Times article on the high-tech industry argues that software patents and the current “smart phone war” are a disaster for innovation, and it backs this with quotes and cites from a horde of academics and judges, like Judge Richard Posner, that software patents are causing “chaos.”

Read the full piece here.

The New York Times set hearts aflutter in the IP world yesterday with its hit piece on patents in the high-tech industry– I’m shocked, shocked to find the New York Times publishing biased articles on hot topics in politics and law — but Bloomberg also published an important article yesterday on the smart phone war, software patents and other topics raised by today’s so-called patent litigation crisis: Apple Phone Patent War Like Sewing Machine Minus Violence.

Read the full piece here. 

Disputes over intellectual property rights permeate our culture. The music and movie industries have brought thousands of copyright infringement lawsuits against users of peer-to-peer systems like BitTorrent. YouTube videos and Facebook postings are regularly taken down because they contain infringing content. Earlier this year, proposed copyright legislation, the Stop Online Piracy Act, was effectively killed by a grassroots uprising on the Internet. After the Internet Blackout Day on Jan. 18, SOPA became the new four-letter word.

Read the full piece here.

In a response to my essay, The Trespass Fallacy in Patent Law, in which I explain why patent scholars like Michael Meurer, James Bessen, T.J. Chiang and others are committing the nirvana fallacy in their critiques of the patent system, my colleague, T.J. Chiang writes at PrawfsBlawg:

The Nirvana fallacy, at least as I understand it, is to compare an imperfect existing arrangement (such as the existing patent system) to a hypothetical idealized system. But the people comparing the patent system to real property—and I count myself among them—are not comparing it to an idealized fictional system, whether conceptualized as land boundaries or as estate boundaries. We are saying that, based on our everyday experiences, the real property system seems to work reasonably well because we don’t feel too uncertain about our real property rights and don’t get into too many disputes with our neighbors. This is admittedly a loose intuition, but it is not an idealization in the sense of using a fictional baseline. It is the same as saying that the patent system seems to work reasonably well because we see a lot of new technology in our everyday experience.

I would like to make two quick points in response to T.J.’s attempt at wiggling out from serving as one of the examples I identify in my essay as a patent scholar who uses trespass doctrine in a way that reflects the nirvana fallacy.

First, what T.J. describes as what he is doing — comparing an actual institutional system to a “loose intuition” about another institutional system — is exactly what Harold Demsetz identified as the nirvana fallacy (when he roughly coined the term in 1969).  When economists or legal scholars commit the nirvana fallacy, they always justify their idealized counterfactual standard by appeal to some intuition or gestalt sense of the world; in fact, Demsetz’s example of the nirvana fallacy is when economists have a loose intuition that regulation always works perfectly to fix market failures.  These economists do this for the simple reason that they’re social scientists, and so they have to make their critiques seem practical.

It’s like the infamous statement by Pauline Kael in 1972 (quoting from memory): “I can’t believe Nixon won, because I don’t know anyone who voted for him.” Similarly, what patent scholars like T.J. are doing is saying: “I can’t believe that trespass isn’t clear and efficient, because I don’t know anyone who has been involved in a trespass lawsuit or I don’t hear of any serious trespass lawsuits.”  Economists or legal scholars always have some anecdotal evidence — either personal experiences or merely an impressionistic intuition about other people — to offer as support for their counterfactual by which they’re evaluating (and criticizing) the actual facts of the world. The question is whether such an idealized counterfactual is a valid empirical metric or not; of course, it is not.  To do this is exactly what Demsetz criticized as the nirvana fallacy.

Ultimately, no social scientist or legal scholar ever commits the “nirvana fallacy” as T.J. has defined it in his blog posting, and this leads to my second point.  The best way to test T.J.’s definition is to ask: Does anyone know a single lawyer, legal scholar or economist who has committed the “nirvana fallacy” as defined by T.J.?  What economist or lawyer appeals to a completely imaginary “fictional baseline” as the standard for evaluating a real-world institution?

The answer to this question is obvious.  In fact, when I posited this exact question to T.J. in an exchange we had before he made his blog posting, he could not answer it.  The reason why he couldn’t answer it is because no one says in legal scholarship or in economic scholarship: “I have a completely made-up, imaginary ‘fictionalized’ world to which I’m going to compare to a real-world institution or legal doctrine.”  This is certainly is not the meaning of the nirvana fallacy, and I’m fairly sure Demsetz would be surprised to learn that he identified a fallacy that according to T.J. has never been committed by a single economist or legal scholar. Ever.

In sum, what T.J. describes in his blog posting — using a “loose intuition” of an institution an empirical standard for critiquing the operation of another institution — is the nirvana fallacy. Philosophers may posit completely imaginary and fictionalized baselines — it’s what they call “other worlds” — but that is not what social scientists and legal scholars do.  Demsetz was not talking about philosophers when he identified the nirvana fallacy.  Rather, he was talking about exactly what T.J. admits he does in his blog posting (and which he has done in his scholarship).

Filed under: economics, intellectual property, law and economics, legal scholarship, patent, scholarship